The $483B Mystery Man Out to Save PRC Stock Markets

The only picture on file of Nie Qingping, the $483B Man.

When I was a wee lad (a young boy in British-speak), I used to watch episodes of The Six Million Dollar Man about an astronaut crippled during a test flight who is subsequently reinvigorated using--you guessed it--$6M worth of bionic implants. They say truth is stranger than fiction, and the Chinese government have their modern-day equivalent: Nie Qingping, an academic largely unknown outside of China, has been given the unenviable task of shoring up the PRC's continuously free-falling stock exchanges, which have shed something on the order of $3.5 trillion since reaching their peak just a few weeks ago.

Who is this guy? Again, most are in the dark except for the sketchiest of biographical details:

Nie, the 53-year-old chairman, hasn’t given interviews on his emergency role, and the government hasn’t spelled out exactly what discretion Nie and his agency have when executing orders from above. Four weeks into the new role, the picture emerging from Nie’s published books and commentaries, as well as interviews with fellow academics, is of a professor with 25 years of experience watching stock manias -- who still got blindsided by China’s latest crisis...

As a junior official, Nie received training at the London Stock Exchange before he was dispatched by the People’s Bank of China to help investigate a bout of stock “mania” in Shenzhen in 1990, which ultimately led to the creation of a formal stock market. People had stopped working to speculate on shares, according to his book “The Long on China,” a history of the stock market. Investigators determined the causes were high dividend payouts, a lack of limits on daily share-price moves, and a limited supply of stocks, he wrote. Nie headed China’s task force that designed the rules for short-selling and margin financing, which China began allowing in 2010.

Instead of $6M worth of (admittedly non-inflation-adjusted) implants, Nie Qingping comes equipped with an estimated $483B in dosh (cast in British-speak, once more). Where did this money come from? From the People's Bank of China (PBoC) and major state-owned financial enterprises' forced contributions. That much we know. What he's doing and what the China Securities Regulatory Commission (CSRC) he now heads are doing with the money are not quite clear. Then again, we're dealing with China here where a purported "regulator" is busy pumping up rather than calming animal spirits:

China Securities Finance was set up in 2011 to provide liquidity for brokerages offering margin financing. Housed on the 15th floor of a building in Beijing’s financial district, in an office where water trickles over traditional Chinese rock sculptures, Nie and his 70-odd staff got access to between 2.5 trillion yuan and 3 trillion yuan ($403 billion to $483 billion) for the rescue, according to people familiar with the matter...

“The role of stock bailout most certainly wasn’t their mandate when they started China Securities Finance,” said Fraser Howie, a co-author of “Red Capitalism,” a book on China’s financial system. “It was set up to do one job, and clearly has been co-opted or coerced -- you can choose your verb -- to go and do another job.”

If anything else, government intervention has markedly increased rather than put a limit to market volatility:

The money on tap is in the form of credit from commercial lenders and from the People’s Bank of China, which has its headquarters about a mile away, as well as from the proceeds of bond sales. It’s designated for buying shares and mutual funds, as well as the agency’s usual role of liquidity for margin finance.

Since China Securities Finance started buying on July 6, a measure of volatility in stocks has surged to nearly a 20-year high. On July 27, the Shanghai Composite Index plunged 8.5 percent, the most since February 2007, as investors feared that the government was pulling back from its rescue efforts. On Monday the index lost another 1.1 percent, extending the loss from its June 12 peak to 30 percent.

Details of how China Securities Finance now operates, how much liquidity remains at its disposal, and how it chooses which stocks and mutual funds to buy haven’t been released officially. Neither Nie nor the agency responded to requests for comment. The agency first bought blue-chip companies before also targeting mid- and smaller-sized companies on July 8, according to statements by the China Securities Regulatory Commission, which oversees the agency.

“Its opacity has already led to extreme volatility and confusion in the stock market,” said CASS’s Liu, who also works for brokerage GF Securities Co. “Investors deserve to know more about it.” 

Asking for PRC transparency in capital markets is like asking Dick Cheney for a pro-peace stance with Iran: get outta here! I'm afraid we will have little idea of what this CSRC does, so we will consequently know little about which actions are effective and ineffective. What can I say? Chinese stock markets are the world's largest casinos, and the government adds to the "excitement" by increasing uncertainty and volatility.

Shuffle up and deal, PRC.